Pet Valu Reports Second Quarter Results and Provides 2021 Outlook

Expecting same-store sales growth above 10% in 2021, following strong Q2 performance of 28%

MARKHAM, ON, Aug. 12, 2021 /CNW/ - Pet Valu Holdings Ltd. ("Pet Valu" or the "Company") (TSX: PET),  the leading Canadian specialty retailer of pet food and pet-related supplies, today announced its financial results for the second quarter ended July 3, 2021.

Second Quarter Highlights

• System-wide sales⁽¹⁾ grew 33.4% to $231.5 million, driven primarily by same-store sales growth⁽¹⁾ of 28.4% versus the second quarter last year. On a two-year basis, same-store sales growth⁽¹⁾ was 24.5%, above the Q1 trend of 21.5%.
• The Company opened 7 new stores in Q2 and has increased its store network by 27 stores over the last 12 months.
• Revenue increased 38.4% to $182.2 million while Adjusted EBITDA⁽¹⁾ grew 52.6% to $42.3 million, representing 23.2% of revenue, up 210 basis points versus the second quarter last year.
• Net income was $44.3 million, up from $0.3 million in the second quarter last year.
• Adjusted Net Income⁽¹⁾ was $8.7 million or $0.12 per diluted share.

2021 Outlook

• The Company expects revenue of about $730 million, supported by same-store sales growth slightly above 10%, Adjusted EBITDA of about $158 million and Adjusted Net Income of about $56 million, or $0.78 per share.

"We are thrilled to have completed our IPO in June, which was an important milestone for our company, as we continue our journey as Canada's preferred pet retailer," stated Richard Maltsbarger, President and Chief Executive Officer. "Our strong performance this quarter extended across all financial metrics and reflected the success of our brand, compassionate and knowledgeable service, unique store experiences, compelling product offerings and enhanced omni-channel capabilities.

"We achieved these results despite challenging pandemic-related operating restrictions, when more than half of our stores were restricted to curbside only shopping for 10 weeks during the quarter," continued Mr. Maltsbarger. "Looking ahead, our unique and flexible business model positions our franchisees and us to drive sustainable, profitable growth."

Financial Results for the Second Quarter Fiscal 2021

All comparative figures below are for the 13-week period ended July 3, 2021, compared to the 13-week period ended June 27, 2020.

Revenue increased by 38.4% to $182.2 million, compared to $131.6 million in the second quarter last year. The increase in revenue was driven by growth in retail sales, as well as franchise and other revenues.

Same-store sales growth⁽¹⁾ was 28.4% in Q2 2021 primarily driven by a 25.6% increase in same-store transactions and a 2.2% increase in same-store average spend per transaction. This is compared to same-store sales growth of (3.9)% in Q2 2020, when the business experienced significant disruptions during the onset of the COVID pandemic.

Gross profit increased to $67.2 million, compared to $43.8 million in the second quarter last year. Gross profit margin was 36.9% in Q2 2021 compared to 33.3% in Q2 2020. The gross profit margin increase of 360 basis points was primarily driven by: (i) leverage gained on fixed costs due to higher revenue; (ii) the favourable impact of the stronger Canadian dollar on products sourced outside Canada and denominated in U.S. dollars; and (iii) the lapping of temporary COVID relief provided to franchisees and higher discounts to employees last year. The favourable impact of these items was partially offset by the absorption of incremental freight costs due to global supply chain issues, distribution costs driven by e-commerce sales, and incremental wages in our warehouses to support increased demand and COVID-related absences.

Selling, general and administrative ("SG&A") expenses increased by 49.4% to $40.6 million, compared to $27.2 million in the second quarter last year. SG&A expenses were 22.3% of revenue compared to 20.6% of revenue in the second quarter last year. The increase of $13.4 million in SG&A expenses was primarily due to: (i) increased compensation costs primarily as a result of the Company operating separately from the Group (as defined herein), headcount investments related to strategic initiatives, and the completion of the initial public offering (the "Offering"); (ii) higher advertising expenses as the Company laps reduced activity in Q2 2020; and (iii) higher professional fees associated with the Offering and separation activities.

Adjusted EBITDA⁽¹⁾ was $42.3 million, or 23.2% of revenue, compared to $27.7 million, or 21.1% of  revenue, in the second quarter last year.

Net interest expense was $20.0 million in Q2 2021, an increase of $3.5 million, or 21.5%, compared to $16.5 million in Q2 2020. The increase was primarily driven by the write-off of unamortized deferred financing costs on the 2016 Credit Facilities of $5.7 million, partially offset by lower interest expense on the 2016 Credit Facilities resulting from lower interest rates and total debt outstanding.

Income taxes were $5.2 million in Q2 2021 compared to $0.1 million in Q2 2020, an increase of $5.1 million year over year. The increase in income taxes was primarily the result of higher taxable earnings in Q2 2021. The effective income tax rate was 10.5% in Q2 2021 compared to 28.6% in the prior year. The Q2 2021 effective tax rate is lower than the blended statutory rate of 26.5% primarily due to favourable tax treatments of foreign exchange gains related to the repayment of the 2016 Term Loans.

Net income was $44.3 million, an increase of $44.0 million from net income of $0.3 million in the second quarter last year. In addition to the factors described above, the change in net income is also explained by a higher gain on foreign exchange of $42.6 million from the repayment of the 2016 Term Loans and the settlement of a foreign exchange forward contract.

Adjusted Net Income⁽¹⁾ increased by $6.1 million to $8.7 million in Q2 2021, compared to $2.6 million in Q2 2020.  Adjusted Net Income as a percentage of revenue was 4.8% in Q2 2021 and 2.0% in Q2 2020.

Adjusted Net Income per Diluted Share⁽¹⁾ was $0.12 compared to $0.05 in the second quarter last year.

Cash and cash equivalents at the end of the second quarter totaled $21.5 million.

Free Cash Flow⁽¹⁾ amounted to $18.9 million in Q2 2021.

Inventory at end of the second quarter of 2021 was $86.8 million.

2021 Outlook

Based on year-to-date performance, and expectations for the balance of the year, the Company expects to achieve the following for the full year 2021:

• Revenue of approximately $730 million, supported by same-store sales growth slightly above 10% and 25-30 new store openings. On a two-year basis, same-store sales growth is expected to remain above 20% through the remainder of the year;
• Adjusted EBITDA of approximately $158 million, which includes the impact of incremental public company costs;
• Adjusted Net Income of approximately $56 million or $0.78 per diluted share; and
• Capital expenditures of approximately $20 million.

Since the onset of the COVID-19 pandemic in early 2020, Pet Valu's performance has been significantly impacted by shifts in consumption patterns, various iterations of pandemic-related operating restrictions, and industry-wide supply chain disruptions. While restrictions have eased in recent months, a heightened level of uncertainty remains regarding potential for future disruption in the second half of 2021. The above outlook is based on several assumptions, including, but not limited to, the continued gradual normalization in the industry and operating environment through the remainder of 2021. 

Conference Call Details

A conference call to discuss the Company's second quarter results is scheduled for August 12, 2021, at 4:30 p.m. ET. To access Pet Valu's conference call, please dial (833) 950-0062, or (844) 200-6205, (access code: 140927). The conference call will also be webcast live at https://investors.petvalu.com/.

For those unable to participate, a replay of the conference call will be available approximately two hours after the conclusion of the call until August 19, 2021. To access the telephone replay, please dial (929) 458-6194 (access code: 255846). A replay of the webcast will also be available approximately two hours after the conclusion of the call on the Company's website at https://investors.petvalu.com/.

About Pet Valu

Pet Valu is Canada's leading retailer of pet food and pet-related supplies with over 600 corporate-owned or franchised locations across the country. For more than 40 years, Pet Valu has earned the trust and loyalty of pet parents by offering knowledgeable customer service, a premium product offering and engaging in-store services. Pet Valu's neighbourhood stores offer more than 7,000 competitively-priced products, including a broad assortment of premium, super premium, holistic and award-winning proprietary brands. To learn more, please visit: www.petvalu.com.

Basis of Presentation - Carve-out Financial Information

Prior to the Offering, the Company was not operating as a stand-alone entity and as a result, the financial information for periods prior to June 30, 2021 are presented on a carve-out basis that includes only legal entities representing the Canadian operations of Pet Valu Holdings Ltd. (referred to as the "Group", prior to the distribution of its U.S. operations to its shareholder). For more information, see the Company's unaudited condensed interim consolidated financial statements and related MD&A for the 13-week and 26-week periods ended July 3, 2021 and June 27, 2020.

Non-IFRS Measures and Industry Metrics

This press release makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Pet Valu uses non-IFRS measures, including "EBITDA", "Adjusted EBITDA", "Adjusted net income", Adjusted Net Income per Diluted Share" and "Free cash flow". This press release also makes reference to certain operating metrics that are commonly used in the retail industry, including "System-wide stores", "System-wide sales", "Same-store sales", "Same-store sales growth". These non-IFRS measures and retail industry operating metrics are used to provide investors with supplemental measures of Pet Valu's operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures and these retail industry metrics in the evaluation of issuers. Management uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation. Refer to the MD&A for the second quarter ended July 3, 2021 for further information on non-IFRS measures and industry metrics, including for their definition and, for non-IFRS measures, a reconciliation to the most comparable IFRS measure.

Forward-Looking Information

Some of the information contained in this press release is forward-looking information. Forward-looking information is provided as of the date of this press release and is based on management's opinions, estimates and assumptions in light of its experience and perception of historical trends, current trends, current conditions and expected future developments, as well as other factors that management believes appropriate and reasonable in the circumstances. Pet Valu does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. Actual results and the timing of events may differ materially from those anticipated in the forward-looking information as a result of various factors. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities is forward-looking information. As the context requires, this may include certain targets as disclosed in the Company's supplemented PREP prospectus ("Prospectus") dated June 23, 2021, which are based on the factors and assumptions, and subject to the risks, as set out therein and herein. Often but not always, forward-looking information can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking information, including, without limitation, the factors discussed in the "Risk Factors" section of the Company's Prospectus. A copy of the Prospectus and the Company's other publicly filed documents can be accessed under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

The Company cautions that the list of risk factors and uncertainties described in the Prospectus is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. The forward-looking information contained in this press release represents our expectations as of the date of this press release (or as the date they are otherwise stated to be made), and are subject to change after such date.  However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

SELECTED CONSOLIDATED FINANCIAL INFORMATION
Condensed Interim Consolidated Statements of Income and Comprehensive Income (Loss)

(Unaudited, in thousands of Canadian dollars, except per share amounts)

Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(Unaudited, in thousands of Canadian dollars unless otherwise noted)

Reconciliation of Net Income to Adjusted Net Income
(Unaudited, in thousands of Canadian dollars unless otherwise noted)

Condensed Interim Consolidated Statements of Cash Flows
(Unaudited, in thousands of Canadian dollars)

Free Cash Flows
(Unaudited, in thousands of Canadian dollars)

Condensed Interim Consolidated Statements of Financial Position
(Unaudited, in thousands of Canadian dollars)

SOURCE Pet Valu Canada Inc.